The complexity of lending has increased with time and the process now involves numerous intermediaries and banks where now the ultimate funding source of a loan and its recipient rarely meet. Individuals deposit excess funds with regulated financial institutions; in turn, funds on deposit are made available to borrowers qualified by a chain of intermediaries who jointly authenticate the applicants' identity, access and assess the applicants' credit history, and return a report to the financial institution, who then extends an offer of credit. In many instances, small individual loans extended by financial institutions are assembled into large portfolios of debt which are then sold to external investors. Loans within these portfolios that are not repaid are then repackaged and resold to collection agencies. Loans that are designated uncollectible may be re-categorized and resold. Along each step of the life cycle of the loan from origination to collection, intermediaries are involved, each of which must be compensated, which adds to the costs involved in traditional lending and borrowing. This process impairs the quality of loan underwriting, risk assessment, and collections because the relationship between loan originator, capital provider, and borrower have been abstracted and obscured beyond recognition and the ultimate recipients and providers of loans have diminished social knowledge of each other, personal responsibility, and accountability.
In recent decades, lenders have sought increasingly objective criteria for evaluating borrower default risks. The standard categories that are assessed are:                Character        Credit        Capacity        Capital        Collateral        
Character in this context refers to the willingness of an individual to meet their financial obligations. Traditionally recognized as the most important of these five elements, character is also the most subjective and time consuming to quantify or qualify. Bankers, when the size of transaction warrants, often rely on subjective intuition, first impressions and reputation to assess this intangible but key qualification criterion.
Today all but the largest loan decisions rely primarily on Credit and Capacity. Credit is based on often-flawed data reported to credit bureaus related to financial factors such as historical payment history and credit utilization. The source of this data is lenders who report data that is then archived in credit bureau databases. The data providers relay periodic, usually monthly reports, either manually or automatically. Capacity evaluation is based on borrower employment, income, credit utilization, debt service costs, overall debt, and expense ratios and other financial data which are all prone to inaccuracy due accidental or deliberate errors or omissions reported by customers, lenders and/or intermediaries.
Therefore there is a need for an improved system and method for assessing credit risk in an on-line lending environment.